Figure2 4 inordert owincus t omers fromanes t ablis

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Unformatted text preview: arian, “Lo cked In, No t Lo cked Out,” Industry Standard, No vember 2–9, 1998. It is critical f o r challengers to realize that in o rder to win custo mers away f ro m a rival, a new entrant must no t o nly demo nstrate to co nsumers that an o f f ering pro vides mo re value than the incumbent, they have to ensure that their value added exceeds the incumbent’s value plus any perceived custo mer switching co sts (see Figure 2.4). If it’s go ing to co st yo u and be inco nvenient, there’s no way yo u’re go ing to leave unless the benef its are o verwhelming. Data can be a particularly stro ng switching co st f o r f irms leveraging techno lo gy. A custo mer who enters her pro f ile into Facebo o k, mo vie pref erences into Netf lix, o r gro cery list into FreshDirect may be unwilling to try rivals—even if these f irms are cheaper o r o f f er mo re f eatures—if mo ving to the new f irm means she’ll lo se inf o rmatio n f eeds, reco mmendatio ns, and time savings pro vided by the f irms that already kno w her well. Fueled by scale o ver time, f irms that have mo re custo mers and have been in business lo nger can gather mo re data, and many can use this data to impro ve their value chain by o f f ering mo re accurate demand f o recasting o r pro duct reco mmendatio ns. Figure 2. 4 In order t o win cus t omers from an es t ablis hed incumbent , a lat e­ent ering rival mus t offer a p roduct or s ervice t hat not only ex ceeds t he value offered by t he incumbent but als o ex ceeds t he incumbent ’ s value and any cus t omer s wit ching cos t s . Competing on Tech Alone Is Tough: Gmail versus Rivals Switching e-mail services can be a real a pain. Yo u’ve go t to co nvince yo ur co ntacts to update their address bo o ks, ho pe that any message-f o rwarding f ro m yo ur o ld service to yo ur new o ne remains active and wo rks pro perly, and regularly check the o ld service to be sure no thing is caught in junk f o lder purgato ry. No t f un. So when Go o gle entered the market f o r f ree e-mail, challenging established rivals Yaho o ! and Micro so f t Ho tmail, it knew it needed to o f f er an o verwhelming advantage to lure away custo mers who had used these o ther services f o r years. Go o gle’s o f f ering? A mailbo x with vastly mo re sto rage than its co mpetito rs. With 250 to 500 times the capacity o f rivals, Gmail users were liberated f ro m the inf amo us “mailbo x f ull” erro r, and co uld send pho to s, so ngs, slidesho ws, and o ther rich media f iles as attachments. A neat inno vatio n, but o ne based o n techno lo gy that incumbents co uld easily co py. Once Yaho o ! and Micro so f t saw that custo mers valued the increased capacity, they quickly increased their o wn mailbo x size, ho lding o n to custo mers who might o therwise have f led to Go o gle. Fo ur years af ter Gmail was intro duced, the service still had less than half the users o f each o f its two biggest rivals. Figure 2. 5 E­mail Market Share in Millions of Us ers J. Graham, “E­mail Carriers Deliver Gift s of Nift y Feat ures t o Lure, Keep Us ers , ” USA Today, Ap ril 1 6, 2008. Differentiation Co mmo dities are pro ducts o r services that are nearly identically o f f ered f ro m multiple vendo rs. Co nsumers buying co mmo dities are highly price-f o cused since they have so many similar cho ices. In o rder to break the co mmo dity trap, many f irms leverage techno lo gy to differentiate their go o ds and services. Dell gained attentio n f ro m custo mers no t o nly because o f its lo w prices, but also because it was o ne o f the f irst P C vendo rs to build co mputers based o n custo mer cho ice. Want a bigger hard drive? Do n’t need the f ast graphics card? Dell will o blige. Data is no t o nly a switching co st, it also plays a critical ro le in dif f erentiatio n. Each time a visito r returns to Amazo n, the f irm uses bro wsing reco rds, purchase patterns, and pro duct ratings to present a custo m ho me page f eaturing pro ducts that the f irm ho pes the visito r will like. Custo mers value the experience they receive at Amazo n so much that the f irm received the highest sco re ever reco rded o n the University o f Michigan’s American Custo mer Satisf actio n Index (ACSI). The sco re was no t just the highest perf o rmance o f any o nline f irm, it was the highest ranking that any service f irm in any industry had ever received. Capital One has also used data to dif f erentiate its o f f erings. The f irm mines data and runs experiments to create risk mo dels o n po tential custo mers. Because o f this, the credit card f irm aggressively pursued a set o f custo mers that o ther lenders co nsidered to o risky based o n simplistic credit sco ring. Techno lo gy determined that a subset o f underserved custo mers was no t pro perly identif ied by co nventio nal techniques and was actually a go o d bet. Finding pro f itable new markets that o thers igno red allo wed Capital One to gro w its EP S (earnings per share) 20 percent a year f o r seven years, a f eat matched by less than 1 percent o f public f irms.T. Davenpo rt and J. Harris, Co m...
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This document was uploaded on 01/31/2014.

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